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EP NNA 22 – Back To The Future Investing

Markets change. The note market is completely different than what it was ten years ago. It was a little Wild Wild West back then. A lot of stuff has happened in the last ten years that’s been exciting. We’ve had our ups and downs just like anybody else, but it’s been an amazing rollercoaster ride. As you look back in history to see what’s going on in the housing market trends, you’ll realize that history repeats itself. Time is equal to all of us. It judges all equally. You just have to know when to take your opportunities and when to tweak things. What are some signs of the upcoming problems then? Where you’re at today, if you could go back in time ten years ago, what would you do differently? What assets would you be buying? Would you be investing in different things? Scott discusses some of the mortgage and housing market trends that are leading to the future, repeating itself, and teaches on how to capitalize them.

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Listen to the podcast here:

Back To The Future Investing

I want to welcome you all to the show. Back To The Future Investing is the title of this episode. This marks the 95th Note Night in America. Who is on this episode? We have a variety of people. We’ve got note investors. We have people who are investing in real estate. We have people looking to get in and out.

You can always catch all the replays of our Note Night in America by simply going to WeCloseNotes.tv. You also have the opportunity to listen to most of them on iTunes. We’ve been taking the Note Night in America episodes and throwing them on iTunes. We have the Note Night in America Podcast as well for you guys that are reading this. If you missed it, you can always catch up. Episodes one through twenty is on there for the year for you to take a look at. We have a big goal here at WeCloseNotes.com. We have a five-year goal to help educate and create 10,000 note investors. Why do we think 10,000? It’s because of a couple of things. One, there’s a small niche of distressed note investors out there, roughly probably less than 5,000. We believe based on what we see in the market taking place, specifically with this episode, that there’ll be a lot of opportunity for people. We believe there’s enough opportunity out there for us all to take advantage of and make a lot of money.

Note CAMP is our big online note convention. We’ll have 30 plus speakers, over three and a half days of content. We’ll have two speakers’ sessions running most times so you can watch one or jump on the other one. Speakers in one room talking about topics for an hour to an hour and fifteen and then the other room we’ll have some deep dives, two-hour-plus sessions of people diving in and sharing a lot of great content. Being much more specific and doing a deep dive into topics like bankruptcy, owner financing, and raising capital. The ticket price is normally $599. We are running a 50% off sale at $299.50. Go to NoteCAMP.live and get signed up there. We expect to have somewhere close to 700 people, if not above that for our sixth installment of Note CAMP Live. We’ll kick off things on Thursday, September 27th at noon. We’ll run until 5:00 PM. Friday and Saturday, 9:00 to 5:00 and Sunday will be 9:00 to 3:00.

We Close Notes Text Message Family

We’ve got some great updates and deals that I want to make you guys aware of. We’ve got some great stuff that we’re rolling out. If you are looking for deals direct to your phone or you’re looking for text message alerts, like the 30-minute notice of the next webinar. You’ve got some alert to, “We’ve got a class kicking off soon,” or a special sale or a special discount for people out there. We’d love to have you opt-in to our We Close Notes text message family. If you’ll text the word NOTES, it doesn’t matter if it’s capital or lowercase, just the word NOTES to 72000, you’ll get a reply back. You’ll have the opportunity to opt-in and get over 80 hours of note training and webinars we’ve done. More importantly, be in our system so that we can send you a message directly to your phone, “Here’s a deal that we’re working on,” or, “Here’s a deal that’s available for sale,” or, “Here are some notes available for you to pick up.”

It’s completely free. There’s no cost to join this aspect of it. Occasionally, text message rates may apply so you may get dinged if you don’t have an unlimited text messaging plan. It’s a great thing that we’ve been working hard to roll out. We are on the final phases of getting this thing rolled out. We’d love for you to get opted into our text messaging network so that we can notify on updates, classes, webinars, special discounts, and deals directly to you. We’d love for you to join us there. We’ll text back when you opt-in with your first name, last name, email. It will send you a link for a basic note presentation and also a link to our WeCloseNotes.tv video so you can download and watch those at a later time.

What Would You Do If You Go Back In Time?

Let’s get to the Back To The Future Investing. A lot of people enjoyed my presentation. A lot of people started talking about some of the things I shared. I thought an easy way to kill two birds with one stone is talk about this again for those of you who didn’t make it out to the Dallas Quest Expo or were busy visiting versus being in the room listening. When I was in Dallas, I asked everybody, “What would you do differently? Where you’re at now, if you could go back to 2008, at the start of the crazy mortgage debacle. What would you do if you could go back in time? What would you do differently? Would you be buying different assets? Would you be investing in different things? If you think about it, all the stuff that’s popped up, the note market is completely different than what it was ten years ago. It was a little Wild West back then. We didn’t have a lot of things that we have now that has been built up in the last five or ten years. Seeing a lot of these things, it’s got a lot easier to find deals than it was when I started back dialing for dollars.

Housing Market Trends: The note market is completely different than what it was ten years ago.

A question is what would you buy? Would you look at things a little bit differently if you could go back in time and start it all over again? What would you avoid? Are there some friendships you would avoid? Some of you have probably not been married to the people that you’re part of. Some of you have come and gone through divorces or relationships in the last ten years. The biggest question I like to ask is, what opportunities would you take advantage of if you could go back in time ten years? What would you do differently? Think about that. With me, I don’t think I would do much differently than the last ten years. I’ve always talked to a lot of people who went through a tough time and having a hard time finding notes. If they knew what they know now ten years ago, they would do things a little bit differently. They wouldn’t go to the fix and flip game. They would go into the note game.

I think about the old cartoon of Scrooge McDuck. There was an episode where he flew back in time and he bought all this stuff, whether it was coal, gold or diamonds. He went back in time to do that, which would be great. The thing that you have to keep in mind is if you think about this, whether you believe it or not, history does repeat itself. In 2008, you wouldn’t have found me. I was going under the radar. I started buying stuff. I had a mortgage that I walked away from. I was doing deals. You wouldn’t have been able to find me too much. On Facebook, I was around for a little bit, but I was not the same guy that I am now.

A lot of stuff has happened since 2008. We’ve had our ups and downs like anybody else, but it’s been an amazing rollercoaster ride. The thing to keep in mind as you look back in history to see what’s going is history repeats itself. That’s one of the things that we always try to look at. What are some signs of upcoming problems? One thing that we all have and share is that we all have 24 hours in a day, 365 days in a year, twelve months. Whatever it is, it’s all equal to us. We all have to take advantage of the opportunities that are provided to us.

Some of us don’t take advantage of opportunities. Some of us are like, “I’ll wait. I’ll pray on it. I’ll wait for my ship to come in.” Your ship is often coming in and going. The movie Back To The Future is one of my favorite movies. I love the storyline, the one, two and three. One is the best one, I believe. The storyline about Marty McFly and having Doc Brown as his mentor, someone he relies on and he’s friends with. You’ve got to love Doc Brown trying to be able to read minds and all the things that he does before he comes up with the idea for the flux capacitor. We all need a Doc Brown in our lives.

My Doc Brown was a gentleman by the name of Mr. Johnson. He made a lot of his money in the RTC days. When everything started to hit the fans, he was like, “Scott, this is the time to act. You need to quit with the fix and flips. You need to focus on the debt game.” That’s where he made a lot of his money. He bought at the right time back in the 1980s, the RTC days, Resolution Trust Corporation. For those that don’t know, the RTC days were in the 1980s. It was a savings and loan debacle. 747 savings and loans failed, $450 billion in loans were bad. We also had that happen again in 2008. We had the bank meltdowns in 2008. 465 banks failed, $700 billion in bailouts for the banks.

Markets Change

The thing to keep in mind is markets change. For some of you who are out there chasing apartments. Apartments are the most expensive asset out there. Years ago, I was seeing a lot of apartment paper at discounts. I was buying paper that some of the gurus were the borrowers on. You have to understand that the market is not the same every time. I’ve had to change my focus. When I first started in the note business, I was doing a lot of commercial ones. I was buying apartment loans and sending them off to the people, taking them down and getting them re-gentrified and moving them on. If you’re buying and investing in assets that are at the peak of the market, the highest thing in the market, you are in the most danger of being left out in the cold or going from the black into the red if the market changes 10%, 15%, 20%.

Time is equal to all of us. It judges all equally. You have to know when to take your opportunities and when to tweak things. Let’s talk about some of these numbers that are popping up in the market. We look back at some of the numbers. In 2010 there were fifteen million homes under water. In May of 2018, there are still 4.5 million homeowners still under water. That’s still basically under a third of those are still underwater. 9.1% of homeowners are in trouble. One in ten of you is in trouble out there. You’re either underwater or you’re behind your mortgage. Underwater, I’m not talking about like Houston when it floods half an inch where it floods. I’m only talking about where people owe more on their houses than what their house is worth. There’s still a tremendous number of borrowers across the country who are upside down.

Literally, 713,000 homeowners owe at least twice as much on their house than what it’s worth. That’s a scary number. Basically, one out of eleven of you are in trouble, and that’s still to this day. The national default rate is still at 3.25%. It’s the lowest it was as of Q2 of 2018 at the end of June, but in the last two months, that is starting to tick up. July marked an 11% increase in defaults over last year’s numbers. Does that mean we hit our bottom or bouncing back up with defaults? I definitely think it does, especially when you look at things. I’ll give you an example. There’s a map of the delinquency rate on single-family residential mortgages. It hit the bottom at 3.25% in Q2 2018, but it’s going to pop back up. The next time you see this map, there should be an uptick. Is that scary? I think so. A lot goes into that. The foreclosure rates, 11% increase over June of last year. We’ve been increasing that for the first time in a long time. Florida is still leading at 9%, and Texas is second at 6.8% in default rates. Part of it has to deal with the hurricane effect. We have to thank Hurricane Harvey for a big chunk of that, but that’s not the only thing that’s driving foreclosures across the country. There are a lot of other states that are in trouble out there. You have Mississippi, Louisiana, Alabama, West Virginia, Indiana and Nevada.

The reason that I like judging Florida and Texas, Florida is not the longest foreclosure timeframe like it was a few years ago. It’s still a lot less than New York and New Jersey, but Texas is a faster foreclosure state, fastest in the nation. Those are two states that I compare default rates too. I started watching it. It takes longer for Florida to foreclose, but Texas is pretty fast. When you have economists out there and people who track it and they say, “Nationwide, it’s like that,” you have to look at it on a state by state basis. What’s happening in Florida is they’re six to twelve months ahead of the rest of the country. Their foreclosures started six to twelve months ago before they hit, whereas Texas could be 90 days. When I see numbers like this, I pull out the whole great Scott and start flipping out because I see opportunity, but I also see things to be concerned about.

Looking At Foreclosure Rates

When you look at these foreclosure rates and things like this, this is some of the things that start to drive me a little concerned out there for the market. I like notes because we’re still picking stuff up at 50% of value or less. It allows us for things that do drop 10%, 15%, 20% or more. We’re still sitting okay, but a lot of investors and a lot of homeowners are overpaying for the property. They’re going to end up taking it on the chin, taking it on the shorts when they end up having to foreclose or the market turned south. I always consider it the big short all over again. Why is it like that? If you’ve never read The Big Short, it was written by Michael Lewis. He’s the author of The Blind Side. He also wrote Moneyball and Flash Boys. Great book, I highly encourage you all to go read it. If you’re not a big reader, go watch the movie, The Big Short, with Christian Bale, Brad Pitt, Ryan Gosling and Steve Carrel in there. It’s a great movie and we’re starting to see things pop up again.

Whenever you start seeing these signs, “100% financing for first-time home buyers,” or, “We’ll donate the down payment for the bank, we’ll share the down payment,” when you start seeing 5/1 or 7/1 adjustable rate mortgages popping back up again, they’ve been around for a while and it’s not something new. These have been around for the last couple of years on some of these programs. It’s like, “One day out of foreclosure, we’ll give you a loan. One day out of bankruptcy, we’ll give you a loan. We can get you a loan at 500 FICO scores.” When I was a mortgage broker, I was seeing stuff from New Century and Option One Mortgage and others that were doing 500 FICO scores, 520 FICO scores. One of the investors will give you 65%, 70% of the loan value or the market value. For some investors, that’s great because they’re pulling their capital out. You’re giving people loans that should not have a loan. People should not be home buyers if they have a 500 FICO. That’s what you’ve got to realize.

Ninja Loans And Non-Primes

There are a lot of things you’ve got to keep in mind out there. I don’t want to see things like this, it’s downright scary. NINJA loans are back, No income, just job verification. Subprime is now called the new nonprime. They couldn’t come up with something original. They had to recycle and call it nonprime or the non-QM. There are a lot of these programs given in all 50 states. It started off with twelve states two years ago. That program worked well. They’re rolling it all out. Nonprime or subprime loans work well in an increasing market, but when the market turns south or starts to soften up, you start seeing values dip, sales price dip or there’s a market increase. Those are things you’ve got to keep your eye on. In that way, you can make sure you’re making the right decisions when it comes to either buying or selling or getting out of the market and getting the cash.

Housing Market Trends: Non-prime or sub-prime loans work well in an increasing market, but when the market turns south, those are things got to keep your eye on.

I like buying nonperforming notes. I’m going to throw out a few of the different companies out there. Maybe some of you have seen some of these companies. These are a few of the lenders out there doing some of this crazy stuff. There are 89 different lenders. There are 90, 95 I’ve seen doing this stuff like 100% financing, different ARM loans, low FICO scores. It’s not the tip of the iceberg that says more and more. These fifteen, sixteen that I have up here is just a drop in the bucket of the ones that are starting to come on board. You have these guys and people who own these big subprime mortgage companies getting back into the business. They’re not doing it with a bank, they’re doing out of their own funds because they can take and create these mortgages. They’re selling them on Wall Street again. They’re selling them all to Wall Street and wrapping them all up in the big bundles and selling them all off and then walking away. Is that a recipe for success? I don’t know. It could be.

Default Rates Going Up

When you see default rates going up, when you see people getting loans that should not get loans. Is that a six-month, a twelve-month? Is it a two-year time frame? I don’t know. I do know though that this is probably going to reappear again. More foreclosures, more things flooding Wall Street, the foreclosure tsunami is what they called it in 2008, 2009, 2010. Are we going to see that happen again? Possibly. Will it be as extreme as it was then? I hope not. I hope we’re smart enough to adjust some things. It’s not going to be any different. They like to say, “We’re going to be different.” No, they’re not. They’re slapping on a different label on the same bag crap. I’m not trying to come across negative. I’m trying to say it’s important to know these signs so that you can take advantage of this, and not only capitalize but help people out as well. Help yourself. Help others out. That’s what I love about nonperforming notes. It’s able to help people out of things. You have an opportunity to come in and do something good to make America great again. It’s like betting on the past.

If you remember in Back To The Future 2, Marty went into the future to see his kids and he picked up a Sports Almanac that gave him 50 years of results with sporting events. Of course, it fell into the hands of Biff and Biff made his fortune. In Back To The Future 2, he was a big pain in the butt. You have to know what’s going on. If you’re seeing these signs, it’s ten years repeating itself. History is repeating itself and you have the opportunity to cash in and be smart about it.

Where To Find These Deals

Foreclosures are not going to go away. Default to paper is not going to go away. It’s risen up to where it is in the last ten years. It’s going to be around. We’re still at a 4.5% default rate. 4.5% default rate on seventeen million mortgages either originated or refinanced is a lot of paper for people to be buying. A lot of distressed debt out there still across the board. Don’t call me up and say, “I want to buy a Bank Of America loan, Wells Fargo, or Citibank.” Those guys have stuff and they sell that stuff off in big tranches still, with moving offshore entities. There’s still plenty of opportunity with the 4,700 different lending institutions out there. We always find these deals at banks, hedge funds, and servicing companies or servicing loans for smaller investors or smaller companies. Auction websites have this. Mortgage bankers have stuff on their warehouse lines. Private sellers like you and me.

With lots of that we’re seeing out there, 90% of the inventory we’re seeing there is still below $150,000 in values. When you buy the note, you step directly into the bank shoes when buying those nonperforming notes. You have all the same rights as the bank do, but you’ll often be an investor. You offer them a little bit of flexibility because you are a boutique at the size. 85% of loan mods fail by banks and we have over three million loan mods done with the Home Affordable Modification Program. Most of the loan mods fail within the first year. The reason for that is the banks don’t forgive the principal, they do fuzzy math. They adjust interest rates down waiting for that time to come back and bring the values back up before they forgive anything.

You’ve got somebody staying in the house to take care of the house, which is great. The reason these loans are failing now and have been failing for the last year or two and we’re starting to see more and more of them are all the banks did was adjust the interest rates, like the 2%. After five years, they adjusted the 3%, 4%, 5%. Now, their mortgage payment is doubled and tripled. They can’t afford that. You’ve got somebody who’s got some pride of ownership taking care of the house. Those are people I’m glad to help. Pricing ranges on these assets, these nonperforming notes from 25% to 75% depending on the market, depending on the foreclosure time frames, depending on the value. They have a lot of moving numbers with it. A lot of people are coming up to me, “I want to buy in Texas.” I’m like, “I expect to pay 70%.” “You said 25%.” I said, “It ranges depending on the market.”

Texas is still a premium. I don’t buy in California. California is the land of fruits and nuts. With all the droughts, the fruits dried up and it was a bunch of nutty people out there overpaying for stuff. You do have a variety of exit strategies to help people out, help borrowers out in their time of need. We truly can make America great again, one mortgage at a time. Our biggest goal is to note investors. For those of you that are familiar, it’s to keep people in their home. Our goal is not to try to rehab the property. You have to make an offer based on the property value. Our goal is to rehab the borrower. If the borrower is not willing to work with us, they’re not going to work with us in some form or fashion. The whole saying, “You no pay, you no stay,” comes into fruition.

We have a question, “What is the average time spent in getting a deal to a point where you aren’t working on it daily?” There’s a whole variety of different ways. It depends on the states that you’re in foreclosing. It depends on what the status is. Is it performing or nonperforming? There are multiple types of notes. Some people are performing, others are seconds, and others are first. Some are owner finance notes, this varies

The Different Strategies You Can Do

Let’s talk about the different strategies you can do. You can wholesale notes. If you can buy it and put on a contract, you can wholesale it off to somebody else. A lot of people like to do that to start off with. You can reinstate the note. Get the borrower to start paying on time again. That’s the whole thing, “I know you’ve not paid for two years. Let’s get you to start paying on time. Let’s get you reinstated or worry about the two years ridge in the backend.” Three, can’t afford what you were paying, let’s worry about modifying the loan. Do we need to drop the interest rate? Do we need to drop the principal after a while? Do we need to drop the payment down? You can always do a loan assumption. That’s something that a lot of people forget about. We often will have borrowers come in, especially the elderly or people who can’t afford or have gone through a divorce or something. Where they get their kids, their brothers, their sisters, their parents or their niece, nephews, we come in to take over the loan payments. We allow that as an exit strategy with what we do in the business.

Cash payoff happens from time to time. We’ve got one that’s working right now. They basically came in and said, “I want a cash payoff.” We picked up something at a nice price and the borrowers will be coming. We’re getting a little bit of a discount because we cash payoff. I am the fastest short sale negotiation company in America. I joke about this, but the thing is if we buy a note at a discount and the borrower still owes the full amount. If the borrower wants to sell the property, that’s great. Let’s see what they are going to net out on the HUD where the closing documents can compare that to what we paid for the note in our expenses and we can approve things pretty relatively quickly.

Short Sales

We had a short sale expert on The Note Closers Podcast. Melody Medley is going to be on who’s out of Dallas. She does a lot of short sales up that neck of the woods. She’s an expert with quite a few years of experience. We talked about what’s going on in the short sale market these days. If the borrowers want to walk away from the property, we’ll have to do that deed in lieu, Cash for Keys. If there’s a second lien on the property, we’re willing to do consent for the judgment to help speed up the foreclosure on that second lien. Unfortunately, about half the time we’re still going to end up foreclosing. If somebody gets re-performing and they’ve paid on time for a few months, six to twelve months, we can resell the performer note. There are a lot of people buying that want performing notes in their portfolio. They don’t want to do all the work, but they’d gladly put it into their IRA.

Number nine, we still end up foreclosing about half the time. That adjusts. It depends on where it’s at or what’s going on. Ten is if you’re going through a deal here and you want it to get re-performing and you have to foreclose or you want to take the proper back. You don’t want a low balance or a low ROI on a re-performer or something like that. It depends on the strategies. You can always sell the note to other note investors. Where do you find these deals? You find them from other investors. You find them from other banks, servicing companies.

There are a lot of people out there that are buying debt for the portfolio that are buying and selling often. We are buying and selling on a pretty constant basis out there. There’s more than one way to get this engine started, to get your batteries charged. What’s going on in the industry? There are a lot of different ways to make money and you can pull your niche out of the hat. Most performing note investors are bashing on nonperforming. That’s great if you’re going to keep bashing on nonperforming stuff. Keep buying it. Get it worked out and selling the performing notes to you at a much higher yield and making some good stuff.

Housing Market Trends: There are a lot of different ways to make money and you can pull your niche out of the hat.

Most people out there, when you go to an expo or a REIA Meetup, a lot of people are out there looking for the ugliest property on the block. Something that if you look at a wholesale and say, “It’s just $5,000 paint and carpet, it’s good to go.” This property which has got a little bit of lean on it, they think for $5,000 or $10,000 you’re going to magically wave your wand, come back in, do the whole flip this house routine and turn it into something like this. That’s not the case. If you’re a note investor, you have to think a little bit bigger picture. I’m talking individual assets where you can hear the wind whistling through the windows. What I’m talking about is more so on a nationwide basis because there’s a lot of opportunity across the country and there’s one number that unites us all as real estate investors.

Keep Fishing And Fishing

Not ARV, not ITV, I’m talking about ROI. Return on investment is the number that unites us all and something we’re looking for. Another number that a lot of us should probably be looking at is ROT, a return on our time. A lot of us are wasting a lot of money and a lot of our time chasing deals, mailing out a lot of postcards. We’re not doing door knocking, trying to do those things that are the old school way of doing things when it’s the 21st Century. We don’t send out postcards to the bank asset manager, we drop an email blast out. We jump on Distressed Pro or LaneGuide, make a list, drop it all out, and market like a machine. Does that mean that’s difficult? You can use sources that are sending you not one lead and then you got to go out and keep fishing, but literally send you lists of notes on a weekly, monthly, quarterly basis. These assets aren’t all ugly. I said early on that 90% to 95% of the inventories are valued at $150,000 or less. These are actual homes in our portfolio that we’ve picked up.

Most of these we have driven by, taking a look at or asked a realtor to drop by. We’re pretty happy. We picked these up at below 50% of value. We’ve got a lot of flexibility of getting the borrowers to work with us on these. Many real estate investors, when they get into real estate, they start off like a puppy. They’re excited. “I’m a real estate investor. I’m a CEO of a one-man show.” After a few months of pulling their hair out, mailing out postcards, they get so upset they want to kill somebody. “This is not going to work. I need to find something else. If this doesn’t work, I’m going to have to pay another $15,000, $20,000, $30,000, $40,000 to some guru. Some national guru who’s running around, who is going to say it works. That what he does or she does is going to work in my market.” That’s not the case. Notes work in a variety of states in a variety of cities. They don’t work everywhere.

The Vendors

I haven’t bought a note in Austin, Texas in a long time, a nonperforming bank note because most of the time it’s over. I haven’t bought anything in California in quite a few years. That doesn’t mean there aren’t opportunities in other parts of the United States. A lot of real estate investors they start off like, “What the hell am I going to do? I feel a little crazy up here.” In note investing, there are plenty of vendors out there to help you with your business. You are not doing this by yourself. You’re not a one-man show who doesn’t even have time enough to brush his hair or shave. There are plenty of private investors out there like at Quest IRA or other places.

You’re looking for deals that are upside down. We help you find those deals. We help you find those direct from the banks. We help you find the realtors to go out and take photos to pull values of the property. We help you with looking at the title of it. ProTitleUSA, which is one vendor, they’ll help you with O&E reports to see what’s clogging up the title, the ownership names. Servicers like Madison Management is the company that we use. They help me with the day-to-day, read the borrower reach out. They make sure the paperwork is taken care of properly as far as what the borrower is going to get in their statements, the borrower outreach. Most of you should not be reaching out. Of course, those that you’ve got to take the foreclosure they help you with the attorneys. The attorneys that help you out, they’ll find those attorneys in each state they can foreclose, file a bankruptcy claim or do what they need to.

There are plenty of vendors out there who are paid to help you get things closed. Once you get your systems in place and get your vendors in place, you’re like, “Why didn’t I start this earlier? No more land lording, no more dealing with toilets, tenants, and trash outs. No more dealing with these crazy wholesalers. I can become the bank and be smiling while I’m sitting courtside. I can do this from anywhere. I don’t have to go by and chase down a contractor. I don’t have to chase down my GC, the tile guy, the plumbing guy. I don’t need to do that being a note investor.” You can do what you want to do. You can invest in areas that you want to invest. That’s the beautiful thing about being a note investor out there and taking advantage of the things that are popping up in the market is there are opportunities where the people get scared.

You Don’t Need A Time Machine, Just Learn From The Past

I like to say that you don’t need your DeLorean. You don’t need a time machine to go back in time. What should have I done back then? You’re going to learn from last decade’s mistakes, the bankers and mainly people who made mistakes and start capitalizing now. You don’t need a flux capacitor. You don’t need some plutonium. You don’t need to freaking battle it out with those who are trying to kill you. You don’t need any of that stuff. If you pay attention to what’s going on and the signs that are repeating themselves, you can really capitalize and realize that the future is now. If you want to be a note investor, now is the time to capitalize.

I talked to people like, “I’ve been a hard money lender for years. I’ve got to get a nice portfolio. I don’t want to work that hard.” That’s fine. You don’t have to work hard. You have your own niche of the note investing game. Stick to where you’re at. Somebody said, “There’s a lot of work.” It can be a lot of work depending on where you’re located at, part of the deals. If you get a lot of assets coming in at one time, it’s going to take some work to work through those assets. There are vendors to help you out there. You have to realize that there’s opportunity. There’s going to be a little bit of work. If you’re not looking for any work at all, then you probably need to look at performing notes. Go buy some performing. You’re going to get somewhere between an 8% and 12% return on your investment. If you want to make a higher return on investment, then nonperforming is where it’s going to be but you’ve got to put some work in.

There are some opportunities out there and that’s what I love about spending Thursday and Friday with our Note Mastermind group. These people are out there buying nonperforming notes. They’re buying these assets. We had vendors come in from all across the country to help assist them with it. These people are in seventeen states. We’ve got a Canadian investor in there as well. We had a servicing company come out. We had our legal teams come out there. We had asset protection people come out to the event to help them with people. We had people come in, vendors, realtors and other vendors to help them out with O&Es, title work and BPOs. There are vendors out there to help you do this stuff. You’re not alone.

What A True Mastermind Is All About

The most wonderful thing about all this is this amazing network. We got people all across the country there: Texas, Philadelphia, Ohio, Arizona, Kansas, Michigan, Texas, Pennsylvania, Arlington, Virginia, Maryland, Oregon, Denver, New Jersey, Houston, Florida and California. People from all over the country coming together to spend some time with each other to help each other out. That’s what a true mastermind is all about, people coming together with the common concept to help out. There are opportunities everywhere. There are a lot of people out there. You have vendors and experts on their teams willing to help each other. That’s the nonperforming team.

That’s what I have for you on this subject. There are lots of opportunities. There are lots of deals to be found. There are even more deals coming down the pipeline with everything going on. If you’re looking for more information on different things, text the word NOTES to 72000. They’ll give you some things to download. The thing to keep in mind is the market is constantly changing. Each state is a little bit different on foreclosure time frames. If you don’t want to do heavy rehabs, then what you need to be looking at is not buying vacant properties but buying occupied assets and checking the taxes, checking the utilities. Some states if you’re buying, you have to foreclose. It can take a little bit awhile. Depending on what you want to do, there’s a niche for you in the note business. I guarantee you this, I will tell you this one thing and one thing only. Each one of you is already in the note business. You’ve got a house payment or a car payment, credit cards, student loans, whatever it is. If you’re paying on to somebody on a debt, you’re in the note business. You’re just on the wrong side of it. You’re still on the wrong side of the fence and you need to be on it where you’re receiving things.

Housing Market Trends: The market is constantly changing.

One of the things we’ve got going on is Note CAMP Live. If you are looking for more information, you may want to check this out. Thirty experts talking about all different types of subjects within the note business, going through things, answering your questions on foreclosure, bankruptcy, finding deals, raising capital, workouts, exit strategies, asset protection. Lots of opportunities for you to learn what’s going on and you deal directly with the vendors, servicing, and foreclosure, whatever it is. We’re here to help. I tell people all the time, do not close on a note deal until you’ve had eyes on a property. You make an offer, you make it an indicative offer, initial offering to a banker hedge fund. They come back with a counter. Don’t counter it until you’ve had a realtor or somebody you know, whether it’s somebody in the Mastermind, a realtor or a vendor drive by the property and put real eyes on it in real time. The last thing you want to end up doing is buying a note on a property you think is the right one and it’s actually the asset across the street or next door to it.

Economic Factors

History’s going to repeat itself. I can tell you that. We all know that. We all see things. I’m not only worried about the default rates or foreclosure rate, I look at other things like some of the economic factors with this trade war if we get in. We have people losing jobs, companies went out of business or laying people off, that leads to foreclosures that lead to default rates. I’m not an economist here. I studied a little bit of economics in college, part of the business degree. You have to understand that the pendulum swings and you can’t have one side going the other thing without leaving other things in the background in its wake. I will be interested in seeing what happens the next six months on default rates. It’s something I track on a regular basis. I will not be surprised to see an increase in it. I don’t think we’ll see the default rate go back down. It’ll either hover where it’s at, but I don’t think it’s going to fall below 3%. Mainly it’s ticked up to 4% and goes from there.

We have a question, “You say that half of any notes you can buy will have been foreclosed on. What’s the best strategy for not to have to foreclose?” About half the notes that we end up buying, we still end up foreclosing on. If you buy a note on a vacant property you’ll have to foreclose 100% of the time. Maybe you’ll get a deed in lieu, but the thing is we try to get everything to reinstate as best we can. That’s why we focus on buying owner-occupied assets. We call the utility departments to make sure there’s not a big balance, we check the taxes. We try to drive by and make sure it’s occupied. We love to offer up modifications, but we’d love to keep everybody in their house if we could. Unfortunately, borrowers don’t want to read their mail. People don’t want to start paying again, so you still end up foreclosing.

That doesn’t mean it’s a bad thing. We start the foreclosure process so we can keep the fire to the borrower’s feet to get them to do something. A lot of times, the borrower will sign the property over for cash for keys or walk away. Foreclosure’s going to happen, but that doesn’t mean it’s a bad thing. A lot of times we’ll sell the actual asset at the foreclosure auction to an investor so we don’t take the property back. That’s the thing is if you’re a note investor if you want to make a business out of it and make it where it’s happening, you’re going to focus on two, three, four markets the most. Assets that have inventory, build your teams and rinse and repeat.

Build Your Teams, Rinse And Repeat

Anytime you start getting outside of your market, “I’m going to go do this weird asset. It’s much more expensive. I’m going to have OTSC syndrome, ‘Oh, that’s so cute,’ syndrome. I’m going to do some weird project.” You start getting in trouble and there are a lot of other brighter investors than me along the way that would agree to that. If you want to try to avoid foreclosure by owner-occupied assets or they’ve made a payment usually in the last twelve months. Something where you can call and check the utilities and making sure that it is in good shape, not trashed out, and checking taxes.

Is this your first time on Note Night In America? I’d love for you to leave a little comment. We have a question, “Are discount rates because of this about 70% throughout Texas?” Pretty much throughout Texas, you’re going to see somewhere in the mid 60% and 70% most of the time because it’s a faster foreclosure state and the values will help. That’s probably the case where you’re using all your own money. I would be using other people’s money. I’d be going and raising capital and buying properly. You’re buying at 50% on the dollar, a fair market value or less. If you’re buying the $40,000, $50,000 range, you’ve got some flexibility there. That’s why it’s important to do your due diligence. That’s why we teach proper due diligence. Go out and take somebody’s word for it because there are people out there that still ask, “We’ve done everything. Take my word.” If somebody says take my word, you have to be careful.

We have a question, “If the property is vacant, do you have to foreclose?” You don’t have to foreclose. If you can contact and track down the borrower often, they can sign the property over to you and even do a deed in lieu. Very rarely you’re going to have anybody moved back in the house and take over payments again on a vacant property. We have a question, “I have a note in rural Missouri that the buyer decided to throw in the towel. I’m not sure if the servicer is good. What are my options?” First of all, I would never have bought in rural Missouri. Is this a note that you own where the borrower walked away? If that’s the case, then what I would do is literally start to foreclosure. Missouri is a faster foreclosure state, roughly about 90, 120 days. Start foreclosing on that. Turn around and sell it. See if you can’t sell it to another investor. Rural Missouri is a bit of an ambiguous or anonymous area.

Market And Raise Private Capital

We have a question, “Would you recommend using a personal line of credit to start doing deals?” You can use your own money, but you might as well market, raise some private capital and use some of the other people’s capital and save your line of credit for foreclosure cost or other things that pop up. If you are buying vacant property, it’s often going to be AC replaced because that’s probably gone on walk about or the copper goblins have shown up to strip the copper in the electrical walls. It doesn’t hurt to use your personal line of credit. Make sure you keep marketing.

The biggest mistake that I see real estate investors make is they use their own money and they never market for private capital. What happens is they end up running out of their own funds. They sit there twiddling their thumbs or sitting on their thumbs and their hands because they’re like, “I don’t have any more money to go do stuff. I’ve got to wait to sell these assets off,” when you should be going out and constantly marketing. You look at the banks, you look at Buffet, you look at some of these bigger guys, they’re constantly raising capital to do bigger deals. That’s the way they get ahead. You sit around trying to use your own limited funds. If you’ve got $1 million, that’s a different story. You’ve got $500,000, different story. If you got less than that, then you probably need to be raising capital to save some things down because you can shoot through $250,000 and $500,000 relatively quickly to make some things.

There are always plenty of deals out there. There are a lot of deals if you work smart to find them and do some of the things that we teach in our workshops or some of the things we teach at Note CAMP 6.0 popping up. Go to NoteCAMP.live, it will allow you to register there. It will automatically adjust the $599 price down at closing to $299.50. Once you get registered, we’ll throw you into an online Base Camp group so you can start networking with the other hundreds of other note investors out there.

If you’re cash poor and credit poor, there are credit rich and cash poor, then go raise some capital. Go out and start networking. Go out and start talking to people. Quit letting your shortcomings affect your business. There’s $7 trillion in private money out there waiting to be spent. It’s sitting out not making anything. They’re waiting, begging for somebody to come off from a deal. Go find a good deal and money will find you a good deal. I promise you on that. Don’t snooze. Take advantage of this half-price discount on Note CAMP 6.0 at NoteCAMP.live. Otherwise, have a great day, a great week. We’ll see you all at the top.